February 24, 2004 Yamanouchi and Fujisawa Enter into A Basic Agreement to Merge on April 1, 2005 Yamanouchi Pharmaceutical Co., Ltd. (Headquartered in Tokyo, Japan; President and CEO: Toichi Takenaka, Ph.D.; hereinafter referred to as Yamanouchi ) and Fujisawa Pharmaceutical Co., Ltd (Headquartered in Osaka, Japan; President and CEO: Hatsuo Aoki, Ph.D.; hereinafter referred to as Fujisawa ) today announced that they have reached a basic agreement to merge on April 1, 2005 and the Board of Directors of the both companies made resolutions at their respective meetings today to this effect.. As explained below, the newly combined company (hereinafter referred to as the Combined Company ) will gain a highly competitive edge in the global pharmaceutical market and will aim at developing into a global mega player, which will be able to cover both primary care physicians (PCP) and specialty markets in the U.S. (1) The Combined Company will rank 17th in the global pharmaceutical market with sales of approximately 800 billion yen. With an established business platform in major pharmaceutical markets including Japan, the United States and Europe, the Combined Company will seek further growth. (2) The Combined Company will secure the No.1 market share in the Japanese pharmaceutical market. The Combined Company will have 2,400 medical representatives (MRs), the largest among domestic pharmaceutical companies, and develop an even stronger sales and marketing infrastructure. (3) In the United States, the Combined Company will be able to provide broad coverage for both PCP and specialty markets, by leveraging the existing infrastructures to accelerate expansion of the US business. (4) The Combined Company will have an annual R&D budget of more than 140 billion yen, the level required to be competitive in the global market, as well as solid research and development capabilities, and new product pipelines. (5) As a preliminary mid-term financial goal (subject to change), the Combined Company will aim at achieving above 1 trillion yen for pharmaceutical sales, and around 25 % as an operating margin. 1
The key highlights of the merger are as follows: 1. Background and objectives of the merger With the growing pressure to control medical expenses in major developed countries, intensifying global competition for the development of new drugs and rising R&D spending, the business environment surrounding the pharmaceutical industry has become increasingly challenging. Competition in the domestic market has intensified as well, characterized by the further implementation of medication cost control policies, such as drug price cuts, and market penetration by global pharmaceutical companies. Under these circumstances, in order to compete globally and achieve sustainable growth, it is necessary to spend on R&D to create innovative new drugs, as well as to develop a global platform to recover efficiently the ever-increasing investment costs. Based on such common understanding by Yamanouchi and Fujisawa, the companies have been considering a merger to enhance their core business platform, the ethical pharmaceutical business and to succeed in the global arena where competition is ever-intensifying. Today, Yamanouchi and Fujisawa reached an agreement on the basic terms of their merger. The Combined Company aims to achieve economies of scale through the integration of the R&D, and sales and marketing capabilities of the both companies, as well as to improve further its profitability through the establishment of more efficient operational structures. The Combined Company will stand as a completely new entity, which is neither Yamanouchi nor Fujisawa, and will strive to contribute to health of the people around the world as a global pharmaceutical company with excellent R&D, and sales and marketing capabilities of its own. 2. Outline of the merger (1) Schedule Board meetings for approval of Basic Agreement February 24, 2004 Signing of Basic Agreement February 24, 2004 Board meetings for approval of Merger Agreement May, 2004 (schedule) Signing of Merger Agreement May, 2004 (schedule) Shareholders meetings for approval of Merger Agreement late-june, 2004 (schedule) Effective Date of Merger April 1, 2005 (schedule) The above schedule is subject to change based upon discussions between the two companies, should any significant issues arise as the transaction proceeds. (2) Merger structure The merger will be effected as a Japanese statutory merger transaction whereby Yamanouchi will be the surviving entity. 2
(3) Merger ratio Company Yamanouchi Fujisawa Merger Ratio 1 0.71 1. Allocation of shares One Fujisawa share will be exchanged for 0.71 Yamanouchi shares. 2. Basis of evaluation of merger ratio Based on the results of valuation analyses conducted by financial advisors appointed by the respective companies, the two companies had extensive negotiations and came to an agreement on the above Merger Ratio. Both Yamanouchi and Fujisawa have received fairness opinions on the Merger Ratio from a financial point of view from their respective financial advisors: Morgan Stanley Japan Limited for Yamanouchi and Lehman Brothers Japan Inc. for Fujisawa. It should be noted that should any changes in material aspects related to various assumptions for the calculations of the agreed merger ratio occur, the Merger Ratio is subject to change following further discussions between the two companies. 3. Number of newly issued shares (anticipated) Common stock 234 million shares (4) Cash payment upon merger No cash payment is planned to shareholders of Yamanouchi and Fujisawa under this merger except for the case payment upon merger in place of Fujisawa s dividend. (5) Anticipated benefits from the merger 1. Enhancement of R&D capabilities - An increased R&D budget will allow the Combined Company to have broader options exercisable strategically in both research and development, thereby strengthening its capability of creating new drugs. - The new product pipelines of Yamanouchi and Fujisawa complement each other globally. - The quality of drug discovery research for new products will improve by combining the technologies and the areas of strengths of the both companies. 2. Enhancement of domestic sales and marketing capabilities - There is little therapeutic area overlap among the main products of the two companies, resulting in a complementary relationship. - The Combined Company will boast the top market share in the domestic 3
pharmaceutical market. The Combined Company also intends to leverage its largest sales force among domestic pharmaceutical companies to develop a stronger sales and marketing infrastructure. 3. Enhancement of global operations - Operations in the United States will have enhanced product pipelines, including YM905 (Vesicare ) (urinary incontinence treatment), micafungin (injectable antifungal) and YM087 (hyponatremia treatment). In addition, by leveraging the existing infrastructures, the Combined Company will be able to provide broad coverage for both PCP and specialty markets, accelerating expansion of the US business. - Operations in Europe and Asia will have enhanced product pipelines and will have one of the most established presences among Japanese pharmaceutical companies in these regions. There is also room to improve efficiency of the operations in these regions through the integration of various business functions held by the both companies. 4. Enhancement of profitability - Through reduction of duplicated investments and costs as well as optimizing its organization and personnel to actualize its vision/strategy, the Combined Company will pursue sales and cost synergies to enhance profitability further. Preliminary mid-term financial goal for the Combined Company, subject to change, is as follows: Pharmaceutical Sales: above 1 trillion yen Operating Margin: around 25% - Cash flow of the Combined Company will provide the opportunity to make aggressive investments in R&D and to acquire products. (6) Merger preparatory committee In order to proceed with the merger smoothly and promptly, the both companies will jointly establish a merger preparatory committee led by the Presidents of the both companies. 4
3. Company profiles (1) Company Yamanouchi Fujisawa name (2) Business Manufacturing, marketing and import/export of pharmaceuticals, quasi-drugs, foods, medical devices, etc. Manufacturing, marketing and import/export of pharmaceuticals, medical supplies and system, and home care business, etc. (3) Date of April, 1923 December, 1930 establishment (4) Address 3-11, Nihonbashi-Honcho 2-chome, Chuo-ku, 3-4-7 Doshomachi, Chuo-ku, Osaka Tokyo (5) Toichi Takenaka, Ph.D. (President and CEO) Hatsuo Aoki, Ph.D. (President and CEO) Representative (6) Capital 99,760 million yen (as of Sept. 30, 2003) 38,589 million yen (as of Sept. 2003) (7) Total shares 361,216,470 shares (as of Sept. 30, 2003) 330,185,210 shares (as of Sept. 30, 2003) outstanding (8) Shareholders equity 702,539 million yen (as of Sept. 30, 2003, 353,342 million yen (as of Sept. 30, 2003, (9) Total assets 890,525 million yen (as of Sept. 30, 2003, 508,354 million yen (as of Sept. 30, 2003, (10) Fiscal year March 31 March 31 end (11) Employees 8,957 (as of Sept. 30, 2003, 8,059 (as of Sept. 30, 2003, (12) Major Kuraya Sanseido, Suzuken, Azwell and others Kuraya Sanseido, Suzuken, Azwell and others customers and suppliers (13) Major Master Trust Bank of Japan 8.13% Master Trust Bank of Japan 11.01% shareholders (%) Japan Trustee Services Bank 7.03% Japan Trustee Services Bank 8.45% Nippon Life Insurance 4.45% Nippon Life Insurance 7.07% The Chase Manhattan Bank, NA London 4.31% The Chase Manhattan Bank, NA London 5.53% State Street Bank and Trust Company 3.36% Trust & Customary Services Bank 4.64% (as of Sept. 30, 2003) (as of Sept. 30, 2003) (14) Main banks Sumitomo Mitsui Banking Corporation UFJ Bank Bank of Tokyo Mitsubishi UFJ Bank Bank of Tokyo Mitsubishi Mizuho Corporate Bank (15) Relationship No capital, personnel or trading relationship with the other party No capital, personnel or trading relationship with the other party 5
(16) Results for the recent three fiscal years and forecast for the current year (JPY in millions) Yamanouchi Fujisawa Fiscal Year 01 02 03 04(F) 01 02 03 04(F) Net Sales Operating Income Recurring Income Net Income Earnings share (yen) Dividend share (yen) Shareholders per per 457,913 481,327 506,602 520,000 297,516 341,356 382,079 396,000 97,843 94,291 105,697 106,000 33,605 46,852 62,143 55,000 106,229 100,021 103,769 106,000 35,727 48,644 61,503 57,000 40,340 55,160 59,858 62,000 20,528 26,150 28,635 31,000 111.80 154.73 177.43 187.26 63.62 80.07 86.62 94.02 25.00 25.00 28.00 31.00 12.00 16.00 18.00 18.00 equity per share (yen) 1,876.54 1,952.47 2,054.17 863.12 962.94 1,016.83 4. Description of the Combined Company (1) Company name: to be determined (2) Business description Manufacturing, marketing and import/export of pharmaceuticals, quasi-drugs, foods and medical supplies and systems, and home care business, etc. (3) Headquarters: Tokyo, Japan (4) Management (Planned): Hatsuo Aoki, Ph.D.: Toichi Takenaka, Ph.D.: Representative Director and Chairman (President and C.E.O. Fujisawa) Representative Director, President and Chief Executive Officer (President and C.E.O. Yamanouchi) The board of directors will be comprised of 8 members (2 external) including the 2 representative directors above and the corporate auditors comprised of 4 members (2 external). In addition, the Combined Company plans to adopt a corporate officer system. 6
Candidates for the member of the board other than the representative directors (excluding the external directors) are as follows. Toshinari Tamura, Ph.D.: Member of the Board and Executive Deputy President (Senior Managing Director, Yamanouchi) Masafumi Nogimori: Member of the Board and Executive Deputy President (Member of the Board and Corporate Senior Vice President, Fujisawa) Koichi Sejima: Member of the Board (Member of the Board and Chief Administrative Officer, Fujisawa) Kunihide Ichikawa: Member of the Board (Senior Managing Director, Yamanouchi) (5) Capital: to be decided (6) Total Assets: to be decided (7) Fiscal year end: March 31 (8) Business prospects after the merger Financial performance post transaction and organizational structure, among other items, will be announced as they become available after further discussion within the merger preparatory committee. Cautionary Statement This material includes forward-looking statements based on assumptions and beliefs in light of the information currently available to the management of Yamanouchi and Fujisawa and subject to significant risks and uncertainties. Actual financial results may differ materially depending on a number of factors including adverse economic conditions, currency exchange rate fluctuations, adverse legislative and regulatory developments, delays in new product launches, pricing and product initiatives of competitors, the inability of the both companies to market existing and new products effectively, interruptions in production, infringements of intellectual property rights of the both companies and the adverse outcome of material litigation. ####### 7